First, anytime you spend $5,000 to buy something (car or otherwise) worth only $3,000 – your net worth immediately goes down by $2,000. Do this often enough and you’ll eventually go broke. (Remember, you can always but a car worth $3,000 for $3,000, not the $5,000 you imply the original questioner ought to pay).

Second, if you decide to trade-in your car in the process of getting one, its resale value (even if not repaired) is far greater than $0 – the dealership will be able to do the repairs for far less than you can (at its cost), and has an incentive to overpay so it can sell the other car to you. Been there and done that – but only once. My car is more than ten years old – but when the repairs will cost more than it’s worth repaired – it’s time to move on.

The math actually works the other way: if you do not fix the car, the resale value is 0, and you have to pay somebody to take it off your hands; if you fix the car, the actual cost is only $2,000, because now you have $3,000 in equity (resale value).

Of course you fix the car to keep it, so the question should be whether it is cheaper to run the old car – taking into consideration of the $5,000 for repairs – vs. the alternative, that is, to buy a new or slightly used car. Unfortunately this article made no mention of this key point, therefore this article is completely irrelevant.

So again it all comes down to the infamous repair vs. depreciation argument. If your annual repair bill is less than the depreciation on the replacement, you should repair, otherwise replace. Assuming the replacement depreciates $2,000 a year – a Honda Civic, for example, it might be more advantageous to replace the Volvo. It is not because of the $5,000 repairs, which can be recovered in three years, but it is because the subsequent repairs that should be anticipated. In other words, it is because Volvo is crap.

5 years ago I personally spent $8,000 to repair a $2,000 car. Would I have done it if I had known before hand that the repairs would cost $8,000? No. Am I glad that I did it? Absolutely. In these 5 years I spent a total of $10,000 on car repairs and maintenance, sure, with $2,000 a year it is almost as much as the depreciation of a new car, still I save on car insurance and car loan interest. Besides, my car is now in excellent mechanical condition and will not need big repairs in the foreseeable future. Remember, depreciation stops only when the car is worth $2,000, your replacement will keep depreciating until it becomes the car that it replaces.